Question I have a delemma...I need advise.

[wonderboy]

I live in CA and have rental properties in another state. They are all underwater and I'm putting in 5k / mo. to cover the mortgage differences.

I've been doing this for about a year now. The principle I owe is over 1 million dollars. I just lost my job, but I was very lucky with a deferred compensation account that is supposed to be paid out later this year or early next year. I expect after taxes to get the 400K from it.

I have a 2 million 401k account so I feel pretty sure that this is proected in bk and I can live on this alone pretty easily.

I get a severence package that is going to be about 180k (90k after taxes).


My primary residence has a 75k line of credit on it that is maxed out. I'd like to use the severance money to pay it off. My house is worth about 100K.

My issue is the 400k. I have about 50k (35k after taxes) in other investments. I really don't want to get it eaten away each month over time and I don't want to get another job for a while. I would much rather try to keep the money.

I was thinking of combining all of the proceeds into a desperate move by investing it in a very leveraged stock transaction. If it works I can pay the million dollar mortgage balances. If it doesn't work I should have no assets other than my 401k and I would stop paying my mortages and wait from them foreclose then file chapter 7 (the properties and in deficiency judgement frienly state and I really don't want to deal with paying taxes on difference). I can withdraw from my 401k with a 10% penalty (probaby 40K a year to beat the tax man).

My question is this. Is what I have outlined illegal? Is there another way to protect the 435k? What would be the optimal timings to stage this strategy? What can go wrong?

I appreciate your patience in reading this and look forward to your input.

[dealingsdone]

Hehhe wonderboy. I'm no lawyer, but it seems to me that you are pretty much plotting on not paying your mortgages unless you win your stock bet.
Heck you have several hundred thousand to fiddle around with here. If a court were to figure out what you have done (assuming you lose the stock bet), i would think that you would run into trouble. That being said, I don't know how the court would find out.

[scorpion35]

with that kinda money coming soon the trustee is going to love it and have a field day with you
when u file u have to provide him with every single accounts statements etc etc

[HHM]

How upside down are the homes?

I think you need to back up and determine whether it is really worth it even if you could get the money to pay the mortgages. For example, if the mortgages are $1MM and the property is only worth $500K, it would be totally stupid to pay off the mortgages. It would be unlikely you would ever see a return on investment.

Honestly, with the cash reserves you have, you are financially better off simply letting the houses go and negotiating a lump sum pay off of any deficiency. I don't see a "cost less" way for you to emerge from this. After all, if the stock scheme does not pay off, you have lost $400K, spending on how upside down the homes are, a deficiency settlement would most likely be significantly less than $400K.

[wonderboy]

Thanks for the advice. How would I approach the banks on something like that?